Market Snapshot: U.S. stocks tick higher - 08-24-98

KevinN. Marder

NEW YORK (CBS.MW) -- Stocks made a half-hearted attempt at extending Friday afternoon's rally Monday, with blue-chip shares ticking to moderate gains while the broader market languished in negative territory.

What buying there was had little conviction, as trading volume slackened from the levels of Friday.

The Dow Jones Industrial Average
DJIA, +0.33%
advanced 32.96 points, or 0.4 percent, to 8,566.61. The Dow had run up as much as 85.48 points by 9:58 a.m. ET.

"The problem now is that we're trying to grope for a bottom, but the market's breadth is negative," said Gregory Kuhn, head of Kuhn Asset Management Co. "So, I don't see the market as a screaming buy opportunity. We have a lot more work to do in here."

Friday, the Dow snapped back from a 283.21-point morning deficit to close down 77.76 points, or 0.9 percent. Its ability to hold close to the 8,317.13 area reached Aug. 11, the low point of the Dow's five-week selloff, was a plus, and prompted a flurry of buying.

"I'm looking for the market to hold," said Frank Gretz, market analyst at Shields & Co. "You can argue that Friday's action was a successful test of the recent lows, since the market held its lows against a background of bad news and going into a weekend.

"Also, the idea that you didn't have as many stocks making new lows Friday as on the prior low was positive," he continued. "Plus, you had a ratio of put options-to-call options [bought] of 1.20, which is the highest in a long time, so you turn people bearish. And the news Friday was as bad as it could be."

Yeltsin had ousted Chernomyrdin five months ago after losing confidence in the speed at which Chernomyrdin was implementing economic reforms. See full story.

On the news, Russia's RTS stock index surged 5.7 percent.

Russia's unveiling of the details surrounding its restructuring of about $40 billion in ruble-denominated short-term debt was reportedly postponed until Tuesday.

In other overseas action, Japan's Nikkei 225 index fell below the important 15,000-point level for the first time in a week, dropping 2.3 percent to 14,988.36. The tumble was greased by pessimism that the government will be able to shore up its crippled banking system.

In particular, Japanese investors are uncertain whether parliament will enact bills to allow the use of public funds to help Long-Term Credit Bank of Japan in its merger with Sumitomo Trust and Banking.

In Hong Kong, the government intervened in the stock market for the sixth-straight day, snapping up shares and stock futures contracts to fend off speculators, who drove the market to a five-year low earlier in August. The benchmark Hang Seng index advanced 4.2 percent.

Stateside, Goldman Sachs' strategist Abby Joseph Cohen remains bullish. In a research report released Monday, she said Wall Street shares are undervalued by 5 percent to 8 percent, reiterating her year-end price targets of 9,300 and 1,150 for the Dow and S&P 500 indexes, respectively.

Cohen said Russia, Brazil, and Venezuela are the three biggest concerns for global investors, yet they account for less than 4 percent of U.S. exports when combined.

Within the U.S. stock market, volume was sluggish in keeping with the pattern of most Mondays.

Leadership was provided by the retailers, safe havens of sorts due to their relative insulation from the stagnating economies of many foreign nations.

A more traditional safe haven, the drug group, also outperformed. Investors favor the stocks in times of economic uncertainty due to their high levels of earnings visibility and liquidity.

Elsewhere, the technology sector dished up a spotty performance, negative on balance.

In the the 30-year Treasury declined 11/32, to yield
TYX, +0.97%
5.464 percent.Friday, the benchmark yield busted through the 5.50 percent barrier to touch down as low as 5.373 percent, before finishing at 5.439 percent.

The yield was the lowest since the government began regularly issuing the maturity in 1977.

"There's a general feeling that, through 5.50 percent, you need a catalyst to take bond yields lower," said Michael Ryan, senior fixed income strategist at PaineWebber Inc. "It's got to be either clear signs that the economy is rolling over, or really benign inflation pressures, or maybe the dollar spiking through 145 or 146 vs. the yen."

"I don't think there's anyone willing to place a bet that Russia's problems are behind them," he said. "And I also don't think there's anyone willing to place the same bet on Asia."

Gretz is on the lookout for a decisive market turn to further cement the notion of a bottom in blue-chip averages.

"You should have an upday with good breadth and good volume to confirm that you've put in a low for the time being," he said. "Even at that, my feeling is that there are lows and there are lows. Is this a low where the market stops going down, or this a low where you're really going to turn around and rally? I'm more inclined to guess you're going to hold up for a month, rather than go up a lot."

Computer network security software developer CyberGuard (CYBG)
CYBG, +37.25%
freefell 4 5/16, or 70 percent, to 1 7/8. It said it will restate its fiscal third-quarter results in light of a review of its revenue-recognition methods. As well, it temporarily took its chief executive and chief financial officer off the job. Friday, KPMG Peat Marwick LLP, CyberGuard's auditor, resigned. See full story.

New York light sweet crude for October delivery advanced 27 cents to $13.64.

December gold fell 20 cents to $288.50.

CURRENCIES

The dollar traded lower vs. the yen and d-mark.

Dollar/yen was quoted at 143.80 from Friday's 144.82.

Dollar/mark was at 1.7948 from 1.7992. See latest currency rates.

LOOKING FORWARD

Tuesday, the August consumer confidence report will be released at 10:00 a.m. ET. The Street expects a reading of 134.9. It is unclear whether consumer confidence leads to stronger consumer spending or whether spending improves consumers' confidence levels. Thus, the usefulness of this release for economic forecasting purposes is questionable.

Also at 10:00 a.m. ET, the July existing-home sales report will be presented at 10:00 a.m. ET. Most economists expect a sales rate of 4.80 million units. The bond market does not accord this release as much attention as the monthly housing starts number since existing home sales don't impact the economy to the degree that new housing construction does.

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